Price Bubbles with Discounting: A Web-Based Classroom Experiment

Aj A. Bostian and Charles Holt

The Journal of Economic Education, 2009, vol. 40, issue 1, 27-37

Abstract: The authors describe a Web-based classroom experiment with two assets: cash and a stock that pays a random dividend. The interest rate on cash, coupled with a well-chosen final redemption value for the stock, induces a flat trajectory for the fundamental value of the stock. However, prices typically rise above this value during a session. The bubbles and crashes that occur in this experiment can stimulate a discussion of asset valuation, discounting, and pricing patterns that are determined by expectations and "animal spirits."

Date: 2009
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DOI: 10.3200/JECE.40.1.027-037

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